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- Self-guarded cryptocurrency wallets allow people around the world to access essential financial services.
- US Treasury Secretary Steven Mnuchin is said to be working on a law to regulate self-hosted crypto wallets.
- According to Brian Armstrong, CEO of Coinbase, the regulation of self-hosted portfolios could be counterproductive.
Since its inception, the blockchain industry has stood out among other technologies for the power it offers to users while ensuring a consistent data flow. The emergence of self-hosted wallets, also known as self-custody wallets, allows people to have complete control over their cryptocurrencies.
In other words, people can store and use digital assets on their own without the need for a third party. It also means that self-custody wallets are unregulated, ensuring that individuals enjoy the true nature of the blockchain.
Regulators plan to crack down on self-hosted crypto wallets
Coinbase CEO Brian Armstrong has unearthed rumors that the US Treasury and Secretary Steven Mnuchin are rushing to enact a law that will directly affect self-hosted digital asset portfolios before the end of his. mandate.
The outspoken executive on Wednesday voiced its concerns via Twitter and highlighted some of the “unwanted side effects” the regulation could bring with it.
The importance of self-hosted cryptocurrency wallets
Self-guarded cryptocurrency wallets remain the backbone of the blockchain and protect the original purpose of cryptocurrencies like Bitcoin. They enable everyone to use decentralized technology to access essential financial services. According to Armstrong, these wallets can be used “just as anyone can use a computer or smartphone to access the open Internet.”
Furthermore, individuals can transact on a peer-to-peer (P2P) basis without interference from third party institutions. Before the blockchain, P2P transactions were a pipedream on the internet, according to the Blockchain Association. However, the idea that individuals can proceed with transactions outside of financial supervisors does not suit policy makers well.
Why the need to regulate self-guarded crypto wallets
Regulators are frightened and concerned that people may engage in illegal activities such as money laundering and financial support for terrorist groups. While their arguments are valid, not everyone in society has the primary goal of participating in criminal activity. Additionally, the Blockchain Association released a report in 2017, stating that for a long time cryptocurrencies have become easy to blame for these illegal activities.
The report said the rate of illegal traction in traditional financial systems is far more alarming than in the cryptocurrency industry. Therefore, the most pressing issue would be to crack down on the illegal activity of fiat ecosystems before going for self-hosted cryptocurrencies with guns on.
The impact of regulating the use of self-hosted cryptocurrency wallets
People around the world are rapidly becoming digitally aware and exploring ways to achieve financial inclusion away from the seemingly exploitative traditional financial system. Online transactions are taking root quickly.
Individuals are concerned about the elimination of the third party, which gives them control over their financial assets. Hence, a law regulating self-hosted crypto wallets could bring full surveillance over people’s financial lives, a move likely counterproductive. According to Armstrong:
The open nature of cryptocurrency is what makes it a powerful tool for innovation, and it is what levels the playing field globally. It is what fuels innovation, as in Defi. It has the potential to reduce the cost of financial services and improve accessibility.
This proposed regulation, we think, would require financial institutions like Coinbase to verify the recipient / owner of the self-hosted wallet, collecting identifying information about that part before a withdrawal can be sent to that self-hosted wallet.
Consequently, cracking down on these self-hosted wallets risks violating people’s identity as they will be required to first provide information on where the funds come from, where they are going and for what purpose. The demand for such details would go beyond the concept of blockchain and derail innovation, expansion and its usefulness on a global scale.
The regulation of self-hosted cryptocurrency wallets is likely to induce users to unregistered foreign companies to access essential financial services. On the other hand, the fear of providing too much information to public institutions would lead to a decrease in the number of cryptocurrency transactions, eventually affecting the entire blockchain industry.
Coinbase and other cryptocurrency companies have already sent a letter to the US Treasury, which highlighted most of the concerns. The letter’s main goal is to beg the regulator to take a deeper and more critical look at what this new law would do to the United States and the rest of the world and, in particular, the fast-growing blockchain industry.
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